Understanding Celsius Crypto Loss & Taxes: What You Need to Know

by
Brihasi Dey
Reviewed by
min read
Last updated:

Celsius is one of the leading exchanges in the world that filed for bankruptcy in July 2022, leaving many investors stuck. Even though the platform has paused all withdrawals, you may still need to report Celsius transactions in your tax returns.

In this article, we discuss whether you can claim your Celsius losses and break down the tax implications of these Celsius transactions. 

Please note that no specific IRS guidelines are released at the moment and the information presented is subject to change.

What Does The Celsius Bankruptcy Mean For Taxes?

Celsius discontinued withdrawals and filed for bankruptcy in July 2022, preventing investors from accessing their money. 

But on January 4, 2023, the US Court declared that based on Celsius’s Terms of Use, when the cryptocurrency assets were deposited in Earn Accounts, they became Celsius’s property and the remaining assets in these Accounts on the Petition Date became the property of the bankruptcy estate.

If you’re a customer with an Earn account in Celsius, you are currently considered an ‘unsecured creditor’. This means the preferred equity holders of CNL will be preferred over you for repayment if ever the Celsius funds are liquidated. 

However, from the tax perspective, this means that the transfer of crypto from the unsecured creditors to Celsius whenever you deposited funds into your Earn account is a form of disposition. 

This makes it almost certain that you may have realized a gain or loss whenever you transferred funds to your Earn account and it is taxable. 

Your cost basis will be calculated based on the fair market value of the crypto at the time of transfer to the Earn account. This makes the calculation of the gains or losses unclear as the customer doesn’t receive anything in return at the moment of the transfer.

It’s important to note that the IRS hasn’t defined any clear guidelines on the Celsius Network taxes. Having said that, the general tax laws may likely be applicable. We recommend consulting with a tax professional to determine your Celsius taxes. 

Can Losses From The Celsius Bankruptcy Be Claimed?

Generally, you have to dispose of your crypto to realize any loss on it. But since investors are not able to access their Celsius funds, it’s still unclear whether they will get back their assets or how they should report the losses due to bankruptcy. 

If we consider the general crypto tax regulations in countries including:

  • USA: IRS doesn't allow you to claim any lost, stolen or hacked crypto as a capital loss.
  • UK: To declare your assets as lost, you’ll have to file for a Negligible Value Claim with the HMRC.

The case is still ongoing and it is possible that a part of the investor assets may be recovered. So, it’s still early to determine what extent of your assets should you claim as a loss. 

It’s important to note that once you declare your crypto assets as “lost”, you lose the right to claim them if the access is ever gained back.

In a recent hearing held on 18 April 2023 by Judge Glenn, a request filed by Celsius’ Unsecured Creditors (UCC) to file an all-account holder “class claim” against Celsius and other debtors for claims like fraud got approved.

If you have already filed other claims before this judgement, it’s still unclear how you can revoke them and join the class claim. You can know all the latest updates on the Celsius case here

Tax Implications On Celsius Staking Rewards

Even though there is no way to withdraw these funds, some platforms including Celsius are still paying staking rewards to their users.

In most countries, these rewards are considered ordinary income and are taxable. Typically, you would have to report these in your tax returns. 

It is advisable to consult a tax professional and understand how you can treat your inaccessible staking rewards for tax purposes.

How To Report Your Crypto Taxes?

Looking for an easy way to calculate your crypto taxes? Kryptoskatt supports major exchanges and wallets to calculate your taxes in minutes.

Here’s how you can do it:

  • Sign Up on Kryptoskatt.
  • Connect your wallet and auto-sync using API keys (read-only) or upload CSV files

  • Kryptoskatt will automatically categorize your taxable transactions, calculate your crypto taxes, and identify any tax-saving claims
  • Download your tax report that complies with your jurisdiction guidelines.

FAQs:

1- Can I claim Celsius losses on taxes?

There are no clear guidelines on how you can claim your losses caused due to the Celsius bankruptcy, However, many professionals believe the typical crypto laws apply until there is any further notice from the IRS. 

2- Can I get a tax break for crypto losses?

Even though the withdrawals are paused, you will still have to report your taxable transactions in your tax returns.

3- Will Celsius clients get their money back?

If you are an unsecured creditor, chances are you will be considered at the end once the preferred equity gets the repayment. The case is still ongoing and there are no clear guidelines for the investor funds.

4- Do I have to pay taxes on Celsius?

Yes, you will have to report your Celsius transactions in the tax returns as they are considered taxable.

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Understanding Celsius Crypto Loss & Taxes: What You Need to Know

By
Brihasi Dey
On

Celsius is one of the leading exchanges in the world that filed for bankruptcy in July 2022, leaving many investors stuck. Even though the platform has paused all withdrawals, you may still need to report Celsius transactions in your tax returns.

In this article, we discuss whether you can claim your Celsius losses and break down the tax implications of these Celsius transactions. 

Please note that no specific IRS guidelines are released at the moment and the information presented is subject to change.

What Does The Celsius Bankruptcy Mean For Taxes?

Celsius discontinued withdrawals and filed for bankruptcy in July 2022, preventing investors from accessing their money. 

But on January 4, 2023, the US Court declared that based on Celsius’s Terms of Use, when the cryptocurrency assets were deposited in Earn Accounts, they became Celsius’s property and the remaining assets in these Accounts on the Petition Date became the property of the bankruptcy estate.

If you’re a customer with an Earn account in Celsius, you are currently considered an ‘unsecured creditor’. This means the preferred equity holders of CNL will be preferred over you for repayment if ever the Celsius funds are liquidated. 

However, from the tax perspective, this means that the transfer of crypto from the unsecured creditors to Celsius whenever you deposited funds into your Earn account is a form of disposition. 

This makes it almost certain that you may have realized a gain or loss whenever you transferred funds to your Earn account and it is taxable. 

Your cost basis will be calculated based on the fair market value of the crypto at the time of transfer to the Earn account. This makes the calculation of the gains or losses unclear as the customer doesn’t receive anything in return at the moment of the transfer.

It’s important to note that the IRS hasn’t defined any clear guidelines on the Celsius Network taxes. Having said that, the general tax laws may likely be applicable. We recommend consulting with a tax professional to determine your Celsius taxes. 

Can Losses From The Celsius Bankruptcy Be Claimed?

Generally, you have to dispose of your crypto to realize any loss on it. But since investors are not able to access their Celsius funds, it’s still unclear whether they will get back their assets or how they should report the losses due to bankruptcy. 

If we consider the general crypto tax regulations in countries including:

  • USA: IRS doesn't allow you to claim any lost, stolen or hacked crypto as a capital loss.
  • UK: To declare your assets as lost, you’ll have to file for a Negligible Value Claim with the HMRC.

The case is still ongoing and it is possible that a part of the investor assets may be recovered. So, it’s still early to determine what extent of your assets should you claim as a loss. 

It’s important to note that once you declare your crypto assets as “lost”, you lose the right to claim them if the access is ever gained back.

In a recent hearing held on 18 April 2023 by Judge Glenn, a request filed by Celsius’ Unsecured Creditors (UCC) to file an all-account holder “class claim” against Celsius and other debtors for claims like fraud got approved.

If you have already filed other claims before this judgement, it’s still unclear how you can revoke them and join the class claim. You can know all the latest updates on the Celsius case here

Tax Implications On Celsius Staking Rewards

Even though there is no way to withdraw these funds, some platforms including Celsius are still paying staking rewards to their users.

In most countries, these rewards are considered ordinary income and are taxable. Typically, you would have to report these in your tax returns. 

It is advisable to consult a tax professional and understand how you can treat your inaccessible staking rewards for tax purposes.

How To Report Your Crypto Taxes?

Looking for an easy way to calculate your crypto taxes? Kryptoskatt supports major exchanges and wallets to calculate your taxes in minutes.

Here’s how you can do it:

  • Sign Up on Kryptoskatt.
  • Connect your wallet and auto-sync using API keys (read-only) or upload CSV files

  • Kryptoskatt will automatically categorize your taxable transactions, calculate your crypto taxes, and identify any tax-saving claims
  • Download your tax report that complies with your jurisdiction guidelines.

FAQs:

1- Can I claim Celsius losses on taxes?

There are no clear guidelines on how you can claim your losses caused due to the Celsius bankruptcy, However, many professionals believe the typical crypto laws apply until there is any further notice from the IRS. 

2- Can I get a tax break for crypto losses?

Even though the withdrawals are paused, you will still have to report your taxable transactions in your tax returns.

3- Will Celsius clients get their money back?

If you are an unsecured creditor, chances are you will be considered at the end once the preferred equity gets the repayment. The case is still ongoing and there are no clear guidelines for the investor funds.

4- Do I have to pay taxes on Celsius?

Yes, you will have to report your Celsius transactions in the tax returns as they are considered taxable.

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